Portfolio Rebalancing

Market moves change weights automatically

If shares rise faster than bonds, an initially balanced portfolio can become more equity-heavy without any deliberate decision. Rebalancing means bringing weights back toward the target allocation rather than chasing the best recent performer.

Calendar and threshold methods are common

A calendar approach reviews on a schedule. A threshold approach acts when an allocation moves beyond a chosen band. Neither guarantees better returns; the purpose is risk control and process discipline.

New cash flows can rebalance gradually

Contributions can be directed toward underweight assets, while withdrawals can come first from overweight assets. This can reduce the need to sell and may lower transaction or tax consequences depending on account rules.

The target should change only for a reason

Do not reset the strategic allocation simply because one asset recently performed better. Change the target when goals, horizon, risk capacity or other fundamental circumstances change.

Quality check for rebalancing

Start from the target allocation and measure the actual drift before trading. Check whether new contributions or withdrawals can restore part of the target without unnecessary transactions. Where taxes or dealing costs apply, include them in the comparison so the portfolio is not repeatedly traded for tiny allocation differences that have little effect on overall risk.